Thursday, July 25, 2013

bcIMC Gains 9.5% Net in 2012-2013

The British Columbia Investment Management Corporation (bcIMC) today released its combined pension plan returns for the year ending March 31, 2013 as part of its 2012–2013 Annual Report. With a one-year annual return of 9.5 per cent, net of fees, the results exceeded a combined benchmark of 7.8 per cent and added $1.5 billion in value to bcIMC's pension plan clients.

“Our domestic real estate and public equities portfolios were the primary drivers of our positive results last year,” said Doug Pearce, Chief Executive Officer/Chief Investment Officer of bcIMC. “On behalf of our clients, we began significantly increasing asset allocations towards real estate and infrastructure in 2011, and this heavier weighting to real assets is beginning to drive investment returns.”

There were a number of highlights from the past year, including:

Committing $3.4 billion to investments that span real estate, infrastructure and renewable resources, which included the purchase of the Canada Post site in downtown Vancouver and Open Grid Europe GmbH

Creating a thematic investing strategy and adding four new funds to give exposure to themed assets, renewable resources, emerging markets and companies with high environmental, social and governance ratings

Increasing our global portfolio to $102.8 billion of gross managed assets, up by $7.3 billion from the previous year.

"I am also pleased with the investment returns for the 10-year period. bcIMC delivered an annualized return of 8.2 per cent against a combined benchmark of 7.8 per cent. As a result, our investment activities contributed $3.2 billion in added value for our pension plan clients," added Pearce.

As of year-end, bcIMC had over $100 billion in gross assets under management. The portfolio includes six major asset classes: Fixed Income (22.9 per cent or $23.6 billion), Mortgages (3.4 per cent or $3.5 billion), Private Placements (4.5 per cent or $4.6 billion), Public Equities (46.6 per cent or $48.0 billion), Real Estate (17.3 per cent or $17.8 billion), and Renewable Resources and Infrastructure (5.3 per cent or $5.4 billion).

bcIMC’s 2012– 2013 Annual Report is available here and the on-line version is available here. You can also read bcIMC's Business Plan 2012-2013 to 2014-2015 which is available here.

The results for 2012-2013 are very impressive. The 9.5% net return (net of expenses) represents $1.5 billion in value-added and exceeded the benchmark by 170 basis points (9.5% vs 7.8%).

As shown above (click on image), over a 10-year period, bcIMC has returned 8.2% net compared to 7.8% for its benchmark during that same period. And as shown below (click on image), the cumulative value added, net of fees, over a ten-year period is $3.2 billion.

As stated in the news release, domestic real estate and public equities portfolios were the primary drivers of their positive results last year. Doug Pearce, Chief Executive Officer/Chief Investment Officer of bcIMC, stated that they began significantly increasing asset allocations towards real estate and infrastructure in 2011, and this "heavier weighting to real assets is beginning to drive investment returns."

Indeed, as shown below (click on image), domestic real estate was one of the primary drivers of bcIMC's strong results, returning 11.8% in 2012-2013, or 6.8% above its benchmark of Canadian CPI + 4%:

Over a 20-year period, bcIMC's domestic real estate portfolio returned 10.1%, exceeding its benchmark by 4.2 percentage points. I have a couple of points to add on this. First, while the spread over inflation is one way to gauge the performance of real estate, as I stated in my comment on AIMCo's 2012 record results, the REALpac/IPD Canadian All Property Index – Large Institutional Subset is a benchmark which better reflects the performance of this asset class.

Still, real estate is an important asset class, and since 1991, bcIMC has been building a domestic real estate portfolio that has a long-term, comprehensive focus and is capable of generating consistent returns through varying economic cycles.

Once again, I urge my readers to carefully go over bcIMC's Annual Report for 2012-2013. There is a lot of information I simply cannot cover here. I like their thematic approach to long-term investing and think many pension funds should adopt a similar approach for investing in public and private markets.

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I am an independent senior economist and pension and investment analyst with years of experience working on the buy and sell-side. I have researched and invested in traditional and alternative asset classes at two of the largest public pension funds in Canada, the Caisse de dépôt et placement du Québec (Caisse) and the Public Sector Pension Investment Board (PSP Investments). I've also consulted the Treasury Board Secretariat of Canada on the governance of the Federal Public Service Pension Plan (2007) and been invited to speak at the Standing Committee on Finance (2009) and the Senate Standing Committee on Banking, Commerce and Trade (2010) to discuss Canada's pension system. You can follow my blog posts on your Bloomberg terminal and track me on Twitter (@PensionPulse) where I post many links to pension and investment articles as well as my market thoughts and other articles of interest.

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